JAPAN Trends and Developments Contributed by: Daniel Jarrett and Hirofumi Kaji, Atsumi & Sakai
The effective date of the Act is set to be within two years and six months from its enactment (which means it will come into effect in Decem - ber 2026). The current level of awareness on the part of companies is reported to be around 30%, but as the effective date approaches, it is expected that general awareness will increase. An EVC captures the fluctuating value of the business itself. For credit management purpos - es, there will inevitably be a strong incentive for the lender to monitor and support the debtor’s business (because it will be necessary for lend - ers to predict the future cash flow of the debtor). The EVC is envisioned to be used in connection with the financing of start-ups, project finance, LBOs, business restructurings and business succession. In the context of securitised products, the EVC may be used for business securitisation or secu - ritisation through collateralised loan obligations (CLOs), with a portfolio of small and medium- sized loans secured by business growth security interests. Revitalisation business During the COVID-19 pandemic, bailout finance for companies was provided by government- affiliated financial institutions (as well as some financing provided by private financial institu - tions with guarantees provided by central or local government). Referred to as zero-zero loans because no interest attached to these loans, and because there were no interim contractual repayments (until maturity of the loan), the total amount of such loans is thought to have exceed - ed JPY40 trillion. Some analysts now conclude that over JPY2 trillion of zero-zero loans have already become non-performing loans (NPLs). However, zero-zero loans have not snowballed,
possibly due to the continued negative interest rate policy. However, as mentioned at the start of this article, negative interest rates are now largely viewed as a thing of the past, and the zero interest rate policy of the Bank of Japan already appears to have been lifted. In the period April–September 2024, bankrupt - cies in Japan were at a 10-year high, with some of the companies involved having been required to repay zero-zero loans. Companies that have difficulty making inter - est payments on their debt based on operating income alone are known as zombie, companies; 14% of listed companies in Japan are already said to be zombie, companies, and this number is expected to increase further as interest rates rise in the future. Some analysts believe that the liquidation of these zombie, companies is a welcome solution to the labour shortage caused by the declining birthrate and an aging population. The question, then, is what kinds of financial schemes can be used to dispose of such NPLs? It should be noted that the collapse of the bub - ble economy resulted in Japanese financial insti - tutions holding a large amount of NPLs. These NPLs were sold at significant discounts relative to their book value in the late 1990s and early 2000s, largely through a bulk sale. Initially, the purchasers were special-purpose companies ( tokubetsu mokuteki kaisha ) established by for - eign funds to purchase such NPLs. However, the situation largely returned to normal following the rapid emergence of several debt collection companies as purchaser candidates of NPLs as
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